Q. Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?

Answer: (c) Promissory Note

A Participatory Note or P-note is an instrument issued by a registered Foreign Institutional Investor (FII) to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI).
- The increase in P-notes investment is in line with the higher net inflows of Foreign Portfolio Investors (FPIs) in the cash segment.
A Certificate of Deposit is a savings certificate with a fixed maturity date and specified fixed interest rate that can be issued in any denomination aside from minimum investment requirements.
Commercial Paper is an unsecured money market instrument issued in the form of a Promissory Note. It was introduced in India in 1990 with a view to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors.
A Promissory Note is a financial instrument that contains a written promise by one party (the note’s issuer or maker) to pay another party (the note’s payee) a definite sum of money, either on demand or at a specified future date.

Foreign portfolio investment (FPI) consists of securities and other financial assets passively held by foreign investors.
- It does not provide the investor with direct ownership of financial assets and is relatively liquid depending on the volatility of the market.
- Foreign portfolio investment is part of a country’s capital account and is shown on its Balance of Payments (BOP).
- The BOP measures the amount of money flowing from one country to other countries over one monetary year.
The investor does not actively manage the investments through FPIs, he does not have control over the securities or the business. However, since the investor’s goal is to create a quick return on his money, FPI is more liquid and less risky than Foreign Direct Investment (FDI).
In contrast, FDI lets an investor purchase a direct business interest in a foreign country. The investor’s goal is to create a long-term income stream while helping the company increase its profits.
The investor controls his monetary investments and actively manages the company into which he puts money. However, because the investor’s money is tied up in a company, he faces less liquidity and more risk when trying to sell his interest.